Monthly Archive for June, 2016
In Heller’s Gas v. International Insurance Company of Hannover, a breach of contract and bad faith case, the insured claimed that documents withheld or redacted did not fall within the attorney-client privilege, the work product doctrine, or reserve information. The insured argued that all but one document was either sent to or from employees of the insurer’s third party administrator (TPA) or its authorized claim representative, and as neither of these entities were subsidiaries of or owned by the insurer, the communications were not privileged.
In the Answer, the insurer did not assert an agency relationship with either the TPA or the authorized claims representative. It took the opposite position in the motion papers, arguing that communications between the TPA’s in-house counsel and/or the claim representative’s in-house counsel with the insurer fell within the scope of attorney-client privilege.
The court reviewed the unredacted documents in camera. The court stated: “After thoroughly examining the documents, this Court finds that the information redacted appropriately falls within the attorney-client privilege and work product doctrine and is consequently information directly related to or referencing legal strategy regarding the instant litigation. The correspondence further supports [the insurer’s] latterly-advanced argument that [the TPA and authorized claims representative] are essentially agents of [the insurer].”
Date of Decision: June 1, 2016
Heller’s Gas, Inc. v. Int’l Ins. Co. of Hannover Ltd., 4:15-CV-01350, 2016 U.S. Dist. LEXIS 71069 (M.D. Pa. June 1, 2016) (Brann, J.)
In Kiss v. State Farm Insurance Company, the District addressed a UIM bad faith claim. The court found the pleadings inadequate under Twombly/Iqbal, and stated as follows:
“In essence, plaintiff’s factual averments are that (1) plaintiffs are insured by defendant for underinsured motorist coverage; (2) the husband plaintiff was involved in a motor vehicle accident; (3) plaintiffs submitted medical records to defendant; (4) plaintiffs made a demand for payment of the underinsured motorist limits; and (5) plaintiffs did not agree with defendant’s valuation of the claim.”
“Plaintiff’s boilerplate allegations assert that defendant lacked a reasonable basis for denying plaintiffs’ claim for benefits, but do not provide any factual allegations from which the Court could make a plausible inference that defendant knew or recklessly disregarded its lack of a reasonable basis for denying benefits. …. Indeed, it is undisputed that the defendant in this case actually paid the underinsured motorist benefits pursuant to an arbitration award. While such assertions perhaps suggest that a bad faith claim is possible, they do not allow for any non-speculative inference that a finding of bad faith is plausible. …. The Rule 12(b)(6) standards, as interpreted by Twombly and Iqbal, require more.”
Unlike a number of other cases that failed the Twombly/Iqbal standards, this case was dismissed with prejudice.
Date of Decision: May 16, 2016
Kiss v. State Farm Ins. Co., 2016 U.S. Dist. LEXIS 64572 (E.D. Pa. May 16, 2016) (Schmehl, J.)
In Long v. New Jersey Manufacturers Insurance Company, the insured brought a bad faith claim based upon the insurer’s allegedly unreasonable interpretation of the policy. The insurer did originally take the position complained of, limiting coverage to $100,000, but eventually dropped that position and came to agreement with the insured on there being greater coverage, $500,000. The insurer brought a motion to dismiss the bad faith claim based upon the insurer’s original position.
The pleadings showed the parties’ agreement that the insurer did for a period of time assert the more restrictive view, but later abandoned this interpretation. The bad faith case “involved an inquiry into the nature, magnitude, and reasonableness of this initial, and admittedly erroneous, interpretation of the policy….”
The court recognized “that an unreasonable, unwarranted, and unjustified interpretation of policy language may form the basis for a bad faith claim, but [there are] particularly exacting standards for such claims.” “Thus, an insurance company’s reliance on an incorrect interpretation of the law will not necessarily yield a finding of bad faith. If that interpretation of the law and policy language was erroneous, but reasonable, a bad faith may still claim fail. …. Likewise, if the insurance company had a number of bases for a legal position, some of which are objectively unreasonable, it may nonetheless defeat a bad faith claim by citing to any reasonable rationale for its action.”
The complaint itself was “spare” in its allegations of bad faith, and in the motion to dismiss process, both parties pointed to facts beyond the pleading in disputing whether the insurer’s position was reasonable. The court recognized that such factual disputes were properly addressed via a summary judgment motion. However, citing Rule 12(e), which allows a defendant to move for a more definite statement of facts in the complaint, the magistrate judge recommended dismissing the complaint without prejudice to allow plaintiff to set out a more definite statement in support of the bad faith claim in the complaint.
Date of Decision: May 17, 2016
Long v. N.J. Mfrs. Ins. Co., Civil No. 3:14-CV-2428, 2016 U.S. Dist. LEXIS 65575 (M.D. Pa. May 17, 2016) (Carlson, U.S.M.J.)
In Racioppi v. Progressive Insurance Company, the court rejected an argument the carrier’s initial removal to federal court constituted bad faith insurance conduct. The matter was remanded once the parties realized there was not complete diversity. The court observed this was a litigation tactic, not related to insurance coverage.
Date of Decision: May 11, 2016
Racioppi v. Progressive Ins. Co., No. 3419 EDA 2015, 2016 Pa. Super. Unpub. LEXIS 1624 (Pa. Super. Ct. May 11, 2016) (Ford Elliott, Bender, Musmanno) (non-precedential)
It has been 10 years since we began the Bad Faith Blog, which now includes over 1,200 posts. Bad faith litigation has remained a constant in state and federal courts over that time, and is a regular part of the litigation landscape. There have been bad faith claims that did not survive motion practice, and some resulting in large awards. As to the frequency of bad faith claims, one Third Circuit panel stated in 2012: “We note, however, that our experience in addressing Pennsylvania insurance coverage disputes has demonstrated that insureds tend to bring bad faith claims when insurers reject their claims even though there are legitimate disputes over whether the claims are covered.”
While there are many aspects of the law which merit attention, one feature does earn special notice: What is bad faith?
In 2007, it appeared that the Supreme Court provided definition to the meaning of bad faith under section 8371, in Toy v. Metropolitan Life. The Court, in both the majority and dissenting opinions, addressed the difference between bad faith conduct which is evidentiary in nature, and bad faith decisions which are actionable in and of themselves. However, Toy is seldom cited, and there is a significant body of case law erasing the line between evidentiary conduct supporting a finding of bad faith, and that same conduct in and of itself being bad faith. We will continue to report on the development of this fundamental issue, and on all aspects of an ever dynamic and constantly growing body of law.